How is Crowdfunding via Digital Platforms Regulated?

December 24th, 2020

Starting November 10th, 2021, Regulation (EU) 2020/1503 on European crowdfunding service providers for business shall apply, which was adopted in order to foster cross-border crowdfunding services.

Why is crowdfunding a good alternative financing solution?

Crowdfunding translates as follows: project owner proposes a project to be funded, investors fund the proposed project, and an intermediating organisation in the form of a crowdfunding service provider brings together project owners and investors through an online platform.

Instead of calling in traditional financing, whereby it may be difficult to find investors or solid collateral is required, crowdfunding offers an opportunity to raise funds from the public via an online platform. As a capital seeker, you will meet capital givers, and your business project will run smoothly.

What are the new rules to facilitate crowdfunding?

Crowdfunding service providers, i.e. crowdfunding platform, must be authorized in the Member State where it is established for authorization. Requirements for such authorization consist of, amongst others, holding own funds of at least EUR 25.000 and/or an insurance policy covering the territories of the Union where crowdfunding offers are actively marketed or a comparable guarantee.

Other requirements relate to provisions of crowdfunding services, organisational and operational requirements or conflicts of interest – for instance, crowdfunding service providers shall not have any participation in any crowdfunding offer on their crowdfunding platforms.

How may the future of crowdfunding look like?

This alternative method of financing can contribute to providing access to finance for start-up companies. Business start-ups can raise amounts of money and be able to grow on the market.

In addition to providing an alternative source of financing, crowdfunding can offer other benefits to businesses. It can validate a business idea, give entrepreneurs access to a large number of people providing insights and information, and be a marketing tool.

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